Fix your "leaky bucket" pricing and double profits
Posted on April 08, 2020 by Paul O'Dea
Leaky bucketYou love to win deals. Right! They pay the wages. You beat that competitor you dislike. But how profitable are these deals? Does your CFO know?
Is your pricing sometimes 'finger in the air'? How do you handle discounts? Do you reduce scope when discounts are given? Is your pricing like a leaky bucket?
Too many CFOs are asleep at the wheel. They don't force their colleagues towards better pricing decisions. Many know a 5% increase in prices could double profits. Pricing is the best lever to grow profits. It forces questions like, which customers are most profitable, what types of customers should we fire, what do our competitors charge, how well do we negotiate?
Try this simple five step pricing decision 'look back' test:
- Select a percentage of deals done in the last 12 months.
- Ask your CFO to do some 'look back' scenario testing – what impact would charging 5% more or reducing scope have had?
- Based on the analysis, challenge sales/marketing to introduce a 5% price increase. Challenge the delivery team to reduce scope when discounting.
- Be demanding on your team. Based on new knowledge, experiment for three months with selective price increases and scope reductions.
- After three months, review and bake your price increase and scope reductions into commercial rules.
Most companies are surprised at the findings. Challenge your CFO to fix your leaky bucket. This simple fix could double your profits.
